The Czech National Bank fined four million crowns to Profi Credit Czech, a provider of consumer loans under the names Insurance loan and Razdva loan.
The CNB found that, at least during the audited period – from the beginning of October 2018 to the end of November 2020 – insufficiently assessed whether those interested in a loan were able to repay and were not at risk of over-indebtedness.
“It did not introduce and maintain procedures and rules for assessing consumer creditworthiness that would ensure the proper provision of consumer credit,” the CNB stated.
The sanction is already valid, the company did not succeed even with an appeal.
The CNB, which oversees the financial market, selected 35 consumer loans during its inspection of Profi Credit. According to her, this is a sufficiently representative sample because it contains contracts with different parameters: both the consumer’s first loan and a repeated loan, contracts with different durations (nine to sixty months), with different amounts of the loan provided (5,000 to 166,000 CZK) and the like .
The audit found that in all 35 cases, Profi Credit “provided consumer loans without properly assessing the consumer’s creditworthiness on the basis of necessary, reliable, sufficient and reasonable information before concluding the contract.” She thus violated the conditions set by the Consumer Credit Act.
Although the company rejected a number of loan applications right from the start, it granted loans to many other applicants, despite not sufficiently verifying their necessary expenses. In several cases, consumers were clearly over-indebted, the CNB stated.
According to the CNB, the company resigned from verifying the expenditure side of the consumer’s budget and concentrated on the income side. It was based on the data provided by the applicant himself in the application (or “set by default” if they were higher than declared by the consumer), but in principle did not verify them at all – even when it had documents from which it was possible to verify at least some expenditure items (for example account statement or statement from the NRKI register – including repayments of existing credit card loans, leasing, existence of overdue debts, etc.).
At the same time, Profi Credit recognized people’s time-limited income in the form of parental allowance, wages from fixed-term employment and income from a staffing agency paid for a period shorter than the loan repayment period.
The CNB also recalled the judgment of the Court of Justice of the EU, according to which “mere unsubstantiated consumer statements cannot be qualified as sufficient in themselves if they are not supported by any documents”. The Supreme Administrative Court of the Czech Republic also stated that “the creditor must carefully ascertain the consumer’s ability to repay the loan and request documents to support his claim”. And according to the Supreme Court of the Czech Republic, “the creditor does not comply with the obligation to proceed with professional care when assessing the ability to repay, if it is based on an objectively unsubstantiated personal statement of the debtor about his personal, earnings and property circumstances. The fact that the debtor is not registered in the debtor databases does not change anything.”
The company also broke the law by not informing clients about the overpayment. In addition, its return was conditioned by a written request from the consumer, payment of a fee of CZK 100, while the minimum amount of the overpayment had to reach at least CZK 150. At the same time, the company applied these unreasonable conditions to the disadvantage of the consumer even in the case where the overpayment itself was to blame by wrongly calculating the remaining amount due.
“The client should primarily monitor the occurrence of an overpayment and ask for its return,” argued the company. The CNB rejected such an approach and reminded, among other things, that according to the Act on Consumer Credit, the provider must act honestly, transparently and take into account the rights and interests of the consumer.
Profi Credit defended itself by, among other things, that it obtained a loan granting license from the CNB in 2018, so it believed that the CNB also agreed with its procedures for assessing clients, which were part of the license application. The Central Bank rejects such an argument: Even after obtaining authorization to operate, the credit provider must of course continue to comply with the conditions and obligations set by law in practice. This can only be verified by checking in practice. In addition: during the audited period alone, the company changed its procedures and rules in this area several times.
The company stated, among other things, that it provides risky loans (“only for a period of several months”) with a greater risk of client failure, and therefore chose “such a way of introducing relevant rules that it is possible on the basis of the client’s documents and with automated checks that take into account statistical and legal living wage requirements to assess the applicant’s creditworthiness. This method makes it possible to assess a large number of applications, while not burdening the approval process with a demanding administrative procedure,” she argued.
The company also failed to refer to the decision of the Court of Justice of the EU, according to which it is not possible to determine the list of information that must be requested from the consumer. According to the CNB, this does not change the fact that the credit provider must assess the consumer’s creditworthiness on the basis of necessary, reliable, sufficient and reasonable information obtained from the consumer.
“He can then grant the loan only if the results of the creditworthiness assessment did not reveal reasonable doubts about the consumer’s ability to repay the consumer loan. It is therefore necessary to comprehensively check both the consumer’s income, as well as his expenses and liabilities through the analysis of the domestic budget in its entire spectrum,” emphasizes the CNB.
A fine of four million crowns is still at the lower limit of the legally defined range, when it reaches a fifth of the maximum possible sanction (the limit is 20 million). On the one hand, the CNB took into account the fact that these were systemic and serious errors, not the exceptional failure of an individual. She also mentioned the scope and duration of Profi Credit’s business and the fact that it is the main subject of its business. On the contrary, as a mitigating circumstance, the CNB stated that it has not yet conducted any proceedings against this company for an offense in the area of the financial market.
The company Profi Credit is owned by Daniel Beran, the 63rd richest Czech according to Forbes magazine’s 2023 ranking.
Petr Kučera
Editor-in-Chief of the Peníze.cz website. It focuses on a wide range of personal finance and consumer topics. He graduated from the Faculty of Law of Charles University in Prague, but he likes the media even more than paragraphs. He led the coverage of the Czech… More articles by the author.
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